[Federal Register Volume 89, Number 108 (Tuesday, June 4, 2024)]
[Notices]
[Pages 48019-48021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-12143]



[[Page 48019]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100237; File No. SR-NSCC-2024-004]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Decommission 
the DTCC Limit Monitoring Risk Management Tool

May 29, 2024.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 16, 2024, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the clearing agency. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    The proposed rule change consists of amendments to the NSCC Rules & 
Procedures (``Rules'') to decommission a risk management tool called 
DTCC Limit Monitoring, as described in greater detail below.\3\
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    \3\ Capitalized terms not defined herein shall have the meaning 
assigned to such terms in the Rules, available at https://www.dtcc.com/legal/rules-and-procedures.aspx.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. The clearing agency has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to modify the Rules to 
decommission the DTCC Limit Monitoring risk management tool (``Limit 
Monitoring''). The proposed rule change is discussed in detail below.
(i) Background
    NSCC provides its Members with a risk management tool called DTCC 
Limit Monitoring, which enables Members to monitor trading activity on 
an intraday basis of their organizations and/or their correspondent 
firms through the review of post-trade data.\4\ Limit Monitoring was 
implemented in 2014 in connection with industry-wide efforts to develop 
tools and strategies to mitigate and address the risks associated with 
increasingly complex, interconnected, and automated market technology 
(such risks include, but are not limited to, trade input errors, 
software or trading algorithm errors, and inadequate controls for 
automated processes). Through Limit Monitoring, NSCC Members can 
establish pre-set limits for their organizations and/or their 
correspondent firms to monitor trading activity and review 
notifications that are delivered when these pre-set limits are being 
approached and when they are reached. Limit Monitoring was intended to 
supplement Members' existing internal risk management processes.\5\ Any 
actions Members determine to take in response to Limit Monitoring 
alerts are the Member's responsibility and are taken away from NSCC. 
Limit Monitoring is primarily discussed in Rule 54 and Procedure 
XVII.\6\
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    \4\ See Securities Exchange Act Release Nos. 71637 (Feb. 28, 
2014), 79 FR 12708 (Mar. 6, 2014) (File No. SR-NSCC-2013-12) and 
77990 (June 3, 2016), 81 FR 37229 (June 9, 2016) (File No. SR-NSCC-
2016-001).
    \5\ In 2022, NSCC modified Rule 54 and Procedure XVII to make 
Limit Monitoring a voluntary tool for all Members and eliminate the 
requirement that certain specified Members register for Limit 
Monitoring. See Securities Exchange Act Release No. 95723 (Sept. 9, 
2022), 87 FR 56724 (Sept. 15, 2022) (File No. SR-NSCC-2022-012).
    \6\ See supra note 3.
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(ii) Proposed Changes to the Rules
    As discussed above, Limit Monitoring was created as part of a 
broader industry-wide effort to develop tools and strategies to 
mitigate and address trading risks. Since the implementation of Limit 
Monitoring in 2014, U.S. equity exchanges have also implemented risk 
controls to mitigate risks inherent with direct exchange transaction 
flow (such controls include, but are not limited to, credit limits, 
single order limits, and kill switch functionality).\7\ These exchange 
risk controls are optional risk management tools made available to 
exchange members to assist them in monitoring and managing their risks. 
In addition, broker-dealers have continued to enhance their own 
internal risk management systems and processes to manage their trading 
risks.
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    \7\ See, e.g., Securities Exchange Act Release Nos. 88599 (Apr. 
8, 2020), 85 FR 20793 (Apr. 14, 2020) (File No. SR-CboeBZX-2020-
006); 88776 (Apr. 29, 2020), 85 FR 26768 (May 5, 2020) (File No. SR-
NYSE-2020-17); 88904 (May 19, 2020), 85 FR 31560 (May 26, 2020) 
(File No. SR-NYSEArca-2020-43); 89225 (July 6, 2020), 85 FR 41650 
(July 10, 2020) (File No. SR-NASDAQ-2020-034).
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    NSCC currently makes Limit Monitoring available to all full-service 
Members to use on a voluntary basis.\8\ Limit Monitoring is intended to 
supplement, and not replace, a Member's own internal systems and 
procedures or other tools, such as exchange pre-trade risk controls, 
available to the Member for managing its risks. NSCC does not require 
Members to take any particular actions based on the output of Limit 
Monitoring, and any actions Members determine to take in response to 
Limit Monitoring alerts are performed away from NSCC. Moreover, NSCC 
does not use Limit Monitoring for its own internal clearance, 
settlement, or risk management purposes.
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    \8\ See supra note 5.
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    The technology platform currently used by NSCC to maintain the data 
infrastructure for Limit Monitoring is nearing the end of its 
lifecycle. As a result, NSCC would need to invest significant resources 
to replace this platform in order to continue to offer Limit Monitoring 
to Members. NSCC has conducted internal review and performed initial 
outreach to Members to evaluate their use of Limit Monitoring. The 
review and outreach indicated that a majority of Members either do not 
use Limit Monitoring or do not rely on it extensively to manage their 
risks. Members that do not use Limit Monitoring or make only limited 
use of it have noted that they primarily rely on other industry or in-
house tools to monitor and evaluate these risks. Additionally, several 
Members that do currently use Limit Monitoring informed NSCC that they 
would be able to work around the elimination of this tool. There were 
no Members that raised significant concerns or objections to the 
decommissioning of Limit Monitoring, or that indicated they could not 
accommodate the elimination of the tool. Given the evolution in 
industry-wide risk control tools and processes since the implementation 
of Limit Monitoring in 2014 and the limited usage of Limit Monitoring 
by Members, NSCC is proposing to decommission the Limit Monitoring 
tool.
    To implement the proposed rule change, NSCC would remove Rule 54

[[Page 48020]]

and Procedure XVII from the Rules. NSCC would also remove associated 
defined terms ``LM Member-provided Data,'' ``LM Trade Date Data,'' ``LM 
Transaction Data,'' ``RP Member-provided Data,'' ``RP Trade Date 
Data,'' and ``RP Transaction Data'' from Rule 1. Finally, NSCC would 
remove section 2(i) of Rule 58 concerning the limitations on NSCC's 
liability for the completeness or accuracy of LM Trade Date Data, LM 
Member-provided Data, LM Transaction Data, or other information or data 
which it receives from Members or third parties and which is utilized 
in DTCC Limit Monitoring, or for any errors, omissions or delays which 
may occur in the transmission of such data or information.
Implementation Timeframe
    Subject to approval by the Commission, NSCC would implement the 
proposed rule change on November 15, 2024.
2. Statutory Basis
    NSCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a registered clearing agency. Section 17A(b)(3)(F) of Act 
\9\ requires, in part, that the rules of a clearing agency be designed 
to promote the prompt and accurate clearance and settlement of 
securities transactions and to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible. NSCC believes the proposed rule change is 
consistent with the requirements of section 17A(b)(3)(F) of Act for the 
reasons set forth below.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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    As discussed above, the technology platform currently used by NSCC 
to maintain the data infrastructure for Limit Monitoring is nearing the 
end of its lifecycle. As a result, NSCC would need to invest 
significant resources to replace this platform to continue offering 
Limit Monitoring to Members. Limit Monitoring is a voluntary tool that 
is intended to supplement, and not replace, a Member's own internal 
systems and procedures or other tools, such as exchange pre-trade risk 
controls, available to the Member for managing its risks. NSCC does not 
require Members to take any particular action based on the output of 
Limit Monitoring, and any actions Members determine to take in response 
to Limit Monitoring alerts are performed away from NSCC. Moreover, NSCC 
does not use the Limit Monitoring tool for its own internal purposes to 
promote or facilitate the clearance, settlement, or risk management of 
securities transactions.
    NSCC's internal analysis and preliminary outreach to Members 
indicated that a majority of Members either do not use Limit Monitoring 
or do not rely on it extensively to manage their risks. Members that do 
not use Limit Monitoring or make only limited use of it noted that they 
primarily rely on other industry or in-house tools to monitor and 
evaluate these risks. Certain other Members that do currently use Limit 
Monitoring informed NSCC that they would be able to work around the 
elimination of this tool. Given the voluntary and supplemental nature 
of Limit Monitoring, the limited use of Limit Monitoring by Members, 
and the evolution and improvement of industry-wide risk control tools 
and processes since the implementation of Limit Monitoring in 2014, 
NSCC is proposing to decommission the Limit Monitoring tool.
    For reasons set forth above, NSCC believes that decommissioning the 
Limit Monitoring tool would not impact the prompt and accurate 
clearance and settlement of securities transactions by NSCC or the 
safeguarding of securities and funds in NSCC's custody or control or 
for which it is responsible. NSCC's rules would therefore continue to 
be designed to promote the prompt and accurate clearance and settlement 
of securities transactions, and to assure the safeguarding securities 
and funds in accordance with section 17A(b)(3)(F) of the Act.\10\
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    \10\ Id.
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(B) Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of Act \11\ requires that the rules of a 
clearing agency do not impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act. The proposed 
rule change would impact certain Members to a greater extent than 
others; however, NSCC does not believe that the proposed rule change 
would have an impact significant enough to present a burden on 
competition. NSCC's internal analysis and preliminary outreach 
indicated that a majority of NSCC Members either do not use Limit 
Monitoring or do not rely on it extensively to manage their risks. 
Members that do not use Limit Monitoring or make only limited use of it 
noted that they primarily rely on other industry or in-house tools to 
monitor and evaluate these risks. Certain Members that do currently use 
Limit Monitoring informed NSCC that they would be able to work around 
the elimination of this tool. Those Members may need to expend 
resources to acquire industry tools or solutions or develop in-house 
tools of their own to replace their use of Limit Monitoring. However, 
NSCC does not believe that the impact would be significant enough to 
impose a burden on competition, particularly as it relates to the use 
of NSCC's services. Therefore, NSCC does not believe that the proposed 
rule change would impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \11\ 15 U.S.C. 78q-1(b)(3)(I).
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(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    NSCC has not received or solicited any written comments relating to 
this proposal. If any written comments are received, they will be 
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
    Persons submitting comments are cautioned that, according to 
section IV (Solicitation of Comments) of the Exhibit 1A in the General 
Instructions to Form 19b-4, the Commission does not edit personal 
identifying information from comment submissions. Commenters should 
submit only information that they wish to make available publicly, 
including their name, email address, and any other identifying 
information.
    All prospective commenters should follow the Commission's 
instructions on how to submit comments, available at https://www.sec.gov/regulatory-actions/how-to-submit-comments. General 
questions regarding the rule filing process or logistical questions 
regarding this filing should be directed to the Main Office of the 
Commission's Division of Trading and Markets at 
[email protected] or 202-551-5777.
    NSCC reserves the right not to respond to any comments received.

III. Date of Effectiveness of the Proposed Rule Change, and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

[[Page 48021]]

    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NSCC-2024-004 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-NSCC-2024-004. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of NSCC and on 
DTCC's website (https://dtcc.com/legal/sec-rule-filings.aspx). Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to File Number SR-NSCC-2024-004 and should be 
submitted on or before June 25, 2024.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-12143 Filed 6-3-24; 8:45 am]
BILLING CODE 8011-01-P